The Chairman of JP Morgan announced on May, 10 2012 a very significant loss on hedging activities of the bank, which makes to anticipate a tightening of bank regulation requirements.

© thejournalofregulation

There is more and more for banking regulation that le Doyen Jean Carbonnier (Dean Jean Carbonnier), master of the legislative art, called "l’effet macédonien" (Macedonian effect). By this expression, this Professor of law, French, had the purpose to react immediately to a particular case to establish a general rule (which had arrived in Macedonia in ancient). The Macedonian effect creates laws unfounded, because they are adopted ex post, in response to the past, then the law is by nature ex ante. "macédonienne" (Macedonian).

The Act is also "unnatural", because the Act is general because that a Macedonian act is only a particular act. Thus, if one were to tighten up bank regulation, by overshooting the Thursday announcement, and only for that, in response, in memory of the violent exchange between the President Jamie Dimon and President Nicolas Sarkozy in Davos on these topics, also as the press is encouraged by reflex effect and a unanimous way, this would be that a "loi Macedonian" ( Macedonian act).

That commentators noted with irony, or even ridicule, that the main exponent of self-regulation is thus denied by the facts, while it had its own bank as the example of the adequacy of a good corporate governance, shows simply that bank regulation is necessary and should not leave this to only pressure from shareholders and corporate bodies. But concerning this, there can be no doubt. Indeed, the question is elsewhere and it continues to be not decided, the event of Thursday providing nothing because it discloses no particular information, or practice on the Bank, or theoretical system on the risks of financial instruments.

The plan Volcker in the United States, the Vickers Commission of the United Kingdom, the European Commission, have developed plans to design ways to limit systemic risk to the banking activity and determine who should bear these risks without creating moral hazard and spiral.

More specifically, to be closer what is coming up to the Bank JP Morgan, the issue here is how financial hedging activities, which limit therefore risks, not turn in speculative activities that increase the risk, or, this double-side of the coin is impossible to prevent,how do we ensure that depositors and the States (as guarantors in the last resort) to be preserved. Technical discussions are conducted everywhere, and solutions drawn, or behavioural nature, certain activities are then prohibited (Volcker rule) or structural nature, banks being split according to their type of activity, depending on whether they are deposit banks, which justifies the State guarantee, or according to whether they are investment (solution Vickers) banks.

Thus, apart from the fact that the President of JP Morgan was less well placed to carry high the banner of the theory of self-regulation, which only a few shreds floating in the wind, the JP Morgan event is a non-event in that it is not a relevant information. It says nothing about the functioning of the banking system and its failures.

It says shows nothing about the concepts and theories of the banking economy. It doesn’t show the need to regulate the banking activity and prevent risk systems and bank failures. Were known already, since this is many months that work and commissions developing texts, the Dodd-Frank being a first play Act. This event merely warms the spirits that to say blurs it.

It is roughly the equivalent of a sordid murder that is reflective on television to talk of the death penalty. This is not rational. It’s not that one must develop laws. They must be written "in cold blood", this is the only way to be firm.